KARACHI:
Environmental regulations are forcing Pak Suzuki to reconsider its opposition to trade liberalisation with India, and may split the hitherto unanimity among the Japanese carmakers operating in Pakistan against freer trade across the Wagah.
The government of Pakistan has begun implementing European emissions standards (known as Euro II) on car assemblers in the country, a decision that went into effect on July 1. All three Japanese makers in Pakistan – Toyota, Honda and Suzuki – have committed to adopting the standards, but meeting the new regulations may become a challenge for Suzuki.
The problem arose after Pak Suzuki Motor Company’s Japanese parent company moved the production of Euro II compliant parts for the Suzuki Alto (one of the best selling smaller cars in Pakistan) from Japan to India. Owing to current legal restrictions on trade between India and Pakistan, Pak Suzuki was forced to discontinue Alto, a blow to buyers of smaller cars, who already had fewer options after Indus Motor’s discontinued the Daihatsu Cuore.
As trade agreements between Pakistan and India stand currently, Pak Suzuki will not be able to import parts from India until the end of the year, assuming Islamabad goes ahead with liberalisation as scheduled. This new compulsion is forcing Pak Suzuki to rethink its opposition to trade liberalisation with India, and will likely split what had been a united front by the car assemblers against free trade.
Sources in Pak Suzuki say the company is already urging the government to speed up the process of liberalisation. The company is desperate to reopen its Alto production, and needs the government to give the green light for imports so that it can place orders as soon as possible, since it would take Indian suppliers three to six months to begin shipping parts to Pakistan.
The Alto is the best-selling 1,000-cc car in Pakistan. In the financial year ending June 30, 2012, Pak Suzuki sold 16,288 units, a 36.5% increase over the previous year. The car is also the third bestselling vehicle produced by Pak Suzuki, after the Mehran and the Bolan, both 800-cc vehicles.
The discontinuation of Alto production comes at a time when imports of used cars is increasing, causing worries at Pak Suzuki that demand for one of its best products might be dampened. “The discontinuation of Alto will give further space to imported economy cars in country,” said one Pak Suzuki official.
Pakistan imported more than 55,000 cars during fiscal 2012. The share of imported cars in the total car market in Pakistan increased to 26% in fiscal 2012, up from 14% the year before. And car importers are optimistic for the future.
“After the suspension of Alto production and the discontinuation of the Cuore, imported cars will fill the gap for local buyers in the sub-1,000-cc category,” said HM Shehzad, chairman of the All Pakistan Motor Dealers Association.
About 45% of imported cars already fall into the category of 1,000-cc engines or lower. Car assemblers are worried about the trend and hope to recover some of their market share. Indus Motor Company – Toyota’s affiliate in Pakistan – discontinued production of the 800-cc Daihatsu Cuore after its global parent modified the model (and renamed it the Mira) and the Indus found it unfeasible to upgrade its production facilities in Pakistan to meet the newer standards, effectively taking Toyota out of the small car market in the country.
Ironically, among the most popular used imports are the Toyota Vitz and Passo, as well as the new version of the Daihatsu Cuore – known as the Daihatsu Mira.
“This is a very unfortunate situation for us and we realize that there is a gap in the market,” said an Indus Motors spokesperson through an email. “We are working on various alternatives and we are very hopeful that soon our discussions with our partners will reach some positive conclusions.”
Published in The Express Tribune, August 23rd, 2012.
COMMENTS (17)
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@Tony Singh: to Blackjack "Nationalism in economics is an obsolete concept." Think again. This thinking is about 10 years behind the times. The great brouhaha about globalization was a ploy by the covetous American managers to shift production to the third world, creating huge unemployment in that sector and their ancillaries in America. But, that was alright as long as the managers paid themselves handsomely and had a ball. Result: manufacturing in America was gutted. Proud manufacturing plants were boarded up. All Americans did was to sell insurance and burgers to each other and to buy shoddily-produced products from China. Now, a better sense has started to prevail. Obama says he is all about "in-sourcing" as opposed to "outsourcing" practiced by Romney all his career. Manufacturing is set to return to America as there has been a considerable heart-burn in the country. Even back offices like call centres, mostly in India and Philippines, are increasingly in jeopardy. In all this, guess who will suffer most. China. All of a sudden all that infrastructure created for ongoing boom is going to go bust as America pulls back its production. I am glad India proceeded cautiously. It will not suffer as much. NEVER discount nationalism! One bird in hand is worth two winging in the air!
If it is such a problem then why cant Pak Suzuki start building those engines in the country? Why need to import from India. 1000cc is a very lucrative market and government must give incentives for the local production of engines.
there seem to be a policy disconnect. While the government has announced policy for Euo 2 compliance, it has not set up an incentives package to produce those engines here in Pakistan.
@pravin: Globally car companies assemble cars. Parts are now days come in the form of console.Consoles are made by different suppliers exclusively for that company as per the specifications. console arrives at the plant just twelve hours prior to assembly.
@BlackJack: I agree with you. Its question of scale. If there is a factory nearby and has the capacity, why not buy from there. The economics of scale does make components cheaper. After all we in India import many products from China. Its not that we cannot produce them, its just that its cheaper to buy from them. Nationalism in economics is an obsolete concept.
@just_someone @BlackJack
Thanks for your answers.
Indian market was very small 2 decades back, but India was still making automobiles. The quality was not good but it drove small to medium scale industries. MNCs started with CKD units but they quickly moved to the local suppliers because they were available and it was cheaper.
I think it is more of a problem of government policy focus rather than shear economy of scale. I think no one is looking at the issue of replacing the imported parts with locally made parts which in turn will create many job opportunities.
Automobile companies throughout the world went through readjustments. Pakistan cannot stay as an island. If its manufacturers join hands with India, Pakistan could become a good source of inputs. It is already doing so successfully for some of the parts. Consumers will be big gainers and the country will save foreign exchange as it has to import CKD kits from Japan and Thailand. The earlier it does so the better it will be for our auto-industry.
No sympathies for Pak Suzuki motors. While fleecing paki customers fro sub standard cars, Pak Suzuki has also ensured that no local car maker dampens its smaller car market by hook or by "crook". If you really want to know how Pak Suzuki does that, ask Adam Motors, who could have offered cheaper vehicles to the Pakistanis. the same applies to the other car makers, who have significantly influenced the auto policy in the country. it is time to break this oligopoly.
Suzuki had been bribing rulers for decades to stop the import of the used cars. They are the ones who had complicated this market which keeps the prices of the local manufactured cars at higher prices compared to the imported-used car which is a good alternate and cheaper. Now they are looking to open the borders just because their investment is at stake. Borders should be opened while keeping the interests of all stake holders and not only one manufacture. We should start trade with India gradually so our industry in general donot get hurt and shock.
After enjoying a considerable monopoly over the Pakistani car market and making consumers submit to the same flat quality and features for over a decade, the Pakistani car manufacturers now feel threatened? It's their loss if they don't want to think in the long term.
Will the new Alto have automatic features like the D Mira? Will it be cheaper? I don't think so.
Sorry, I don't sympathize.
Pakistanis love their dinki cars.
@pravin: 100% localization for a tiny local market will not make sense. To put it in perspective, the article says that Alto sold 16k units in FY12 which was a growth of 36.5% YoY. In India, in April 2012 alone, Alto sold 17.5k units, which was a de-growth of 30% YoY. Assembling with limited localization makes eminent sense for Pakistan if it can reduce the consumer prices of the end-product.
Rather then now supporting trade liberalization, why does not Pak Suzuki forces the parent company to open a plant here in Pak?
@pravin: they had been rules the car manufacturers had agreed to under which they would slowly go from a certain percentage of imported parts to a lower percentage over some N years. But all the manufacturers didnt implement this agreement. Stupidly the manufacturers prefer to import parts from Japan (incurring very high labor costs and import duties) rather than manufacturing them at much cheaper rates in Pak and hence increase their margins. At the same time, they used to create artificial shortages to cars to increase prices because they had a monopoly to do so. Based on these and other factors, the government, correctly, decreased duties on imported cars to make these guys become more efficient which can only happen from competition. Whats shocking is that Pak Suzuki preferred to shutdown production of one of the most selling cars in Pak rather than just establish a facility to make the parts that they need. A good reporter would have talked to a Suzuki rep to find out why they choose to do the above...
I think government should do some due diligence on trade liberation of final product.
Firstly, the import of complete car will be more feasible for the Pakistani Customer and it make some local assemblers to break their monopoly in generating unjustified high profits.
Furthermore, cost of car from India will be lesser as compared to Pakistani car in the similar capacity.
Secondly government should reduce import duties on used card and new cars. The decrease in revenue due to reduction in import duties will be adjusted against the volume of import and there is potential chances that it will be increased.
Don't you manufacture cars in Pakistan? Are they only assembled there?
Pakistan is at disadvantage over India and China in terms of smaller market, poor infrastructure of suppliers, poor cash flow in the middle income group and shortage of electricity. This all adds up to vicious cycle and increase import and outflow of foreign exchange leading to lower value for Pakistani rupee and that further increases the cost of imports and so on and so on. Pakistan needs few leaders with backbone to stand up and say buck stops here and I am making right decision for the country. Until than enjoy imported cars.